<

Foreign markets are less developed relaying the biggest opportunity for C, JPM, and GS

Foreign markets 03.26.2013Enlarge GraphWhen looking at the size of foreign capital markets as a percentage of gross domestic product (GDP), markets including Brazil, China, and Japan spell the best opportunity for the investment banks with the largest foreign operations.

Looking at the market capitalization, or market value, of various national stock markets compared to respective gross domestic product (GDP) relays the maturity, or the potential future development, of a particular capital market. For example, looking at the current market value of developed stocks market including the U.K., Canada, and the United States shows that the value of these capital markets to these countries respective GDPs is 124%, 109%, and 100%. For example, the $16 trillion U.S. stock market is supported by the $16 trillion annual U.S. economy (for a ratio of 100% herein). The combination of legacy equity cultures, strong accounting standards, and high per capita income enables these respective economies to have the most developed capital markets. This same methodology of looking at stock market value to GDP shows that the equity markets in Japan, Brazil, China, and Mexico have substantial future development in the future to match the current valuations in various Western markets. The country of Brazil sports just a 48% ratio of stock market value to its GDP, and China sits at just 37% by the same measure. Thus, it will be the investment banks with the largest foreign operations that will benefit as these emerging markets become more developed.

Foreign markets 2 03.26.2013Enlarge Graph

The leading banking operations that will assist these nascent markets with stock underwriting (new companies coming to market and also existing companies listing new shares) include Citigroup (C), JP Morgan (JPM), and Goldman Sachs (GS). Citigroup has the largest percentage of foreign revenue in its total sales mix at 68%. JP Morgan and Goldman Sachs are next, respectively, with 48% and 42% of revenue outside the U.S.

While foreign market development is a long-term phenomenon, it represents a faster growth trajectory versus markets that are already at, or above, their equivalent GDP levels.

The Realist Discussions